D'Amore-McKim recently hosted the second in a series of events to address and celebrate the thematic pillars of our new mission, continuing this exploration with a focus on the future of global business. (The first examined leadership and technology in business.) These events—collectively dubbed ‘Beyond Boundaries'—will be accompanied by faculty insights like the following.
By Ravi Ramamurti, Michael Enright, Ravi Sarathy, Fabricius Somogyi
We would like to thank Devika Bulchandani, Global CEO, Ogilvy, and David Vitti, VP-Global Procurement, Bose Corporation, for participating in this event and sharing their insights. We also thank fellow panelist Samina Karim, Professor and Group Chair, Entrepreneurship and Innovation, who was unable to participate in writing this summary but whose insights are included here. Finally, we would like to thank David De Cremer, Dunton Family Dean, D'Amore-McKim School of Business, for initiating the Beyond Boundaries series of which this event was a part.
The global economy is at an inflexion point. Megatrends that served as tailwinds for globalization are either losing steam or turning into headwinds. These include trends in demographics, the rise of protectionism, the weakening of global institutions, the transition to a multipolar world, and new technologies such as digitization, AI, and cryptocurrencies. America's role in the world economy will continue to change as well. What will all this mean for global business and global managers?
At the D'Amore-McKim School of Business (DMSB) at Northeastern University, we take these questions seriously because our mission is to prepare students who can be responsible global leaders in the digital age. DMSB launched the Beyond Business series to explore the main pillars of our mission, and the second such conference focused on the global dimension of business. It brought together students, academic thought leaders, and two corporate executives—the Global CEO of the multinational advertising firm Ogilvy and the head of global procurement at Bose Corporation—to discuss how the global context is changing and its implications for corporate strategies and leadership.
The main conclusions were that global firms will have to contend with much greater uncertainty and geopolitical tensions than in the past. Companies will have to rethink their China strategy, optimize supply chains, bolster resilience, and build cross-border partnerships more selectively. Even though America's role in the world economy will change in a multipolar world, the US dollar is likely to remain the world's currency of choice, even if cryptocurrencies gain followers.
Global managers of the future must have a high tolerance for uncertainty and volatility and learn to manage complex stakeholder relations at home and abroad. They must be flexible, agile, and adept at working in diverse, cross-cultural settings. And they must be skilled at balancing global scale and local responsiveness, to accommodate national or sub-national differences and fierce local competition.
How is the global context changing?
Three megatrends that provided tailwind to globalization in the post-WW2 years are starting to weaken or even become headwinds to future globalization. In addition, new technologies, such as digitization, AI, and cryptocurrencies, create new opportunities and challenges for global firms.
- Slowing growth because of demographic trends: In the 75 years since 1950, the world's population has more than tripled, from 2.5 billion to 8.2 billion—a spike that the world has never witnessed before and never will again. That demographic explosion, combined with other factors, produced the fastest rates of GDP growth that the world has ever experienced. However, in the next 75 years, from 2025-2100, the world population may grow to 10.4 billion, which would be only a 27 percent increase, with most of that occurring in Africa and Asia. Population has already peaked in Japan, China, Western Europe, and the US (excluding immigration), because of falling fertility rates. By 2070, the world population will peak, and thereafter, it will fall, possibly to as little as 4.3 billion by 2150. In short, in the next few decades, demography will change from providing a strong tailwind for growth to a weak one and then eventually turn into a headwind (Ramamurti, 2024a).
- Reversal of global economic integration: After the Bretton Woods conference in 1944, 44 nations led by the US agreed to open their markets to international trade by lowering tariffs, ending quotas, promoting foreign direct investment, allowing freer movement of capital, and creating new global institutions such as the World Bank and the IMF. After developing countries gained independence, a number of them also embraced globalization and economic integration. After the fall of the Berlin Wall, several formerly Communist countries joined the globalization bandwagon. From 2000 to 2008, world GDP and world trade grew at record rates, fueled by high rates of growth in China, India, and other emerging economies.
Starting around 2015, globalization entered a new phase. Brexit, China's self-sufficiency drive, and the “America First” policies of President Trump signaled the beginning of a period of economic disintegration, protectionism, isolationism, and sometimes xenophobia. The institutional foundations of globalization have also begun to weaken, e.g., the World Trade Organization is no longer able to hold countries accountable for their treaty obligations. Instead of championing globalization and multilateralism, the US has pursued protectionism and unilateralism to level the playing field with economies such as China's that were demonstrably less open than the US.
- A rudderless multipolar world? After WW2, Cold War politics dominated the world. In this bipolar world, the US led the Western alliance and championed free markets, free trade, and democracy. With the collapse of the Soviet Union, we entered a “unipolar moment” in which the US was the world's only superpower, and it appeared as if all major economies were embracing globalization and democracy. Even Russia moved in this direction and was invited to join the G7, which then became the G8. However, by 2015, with the rise of emerging markets such as China and India, we entered the era of the multipolar world. The G8 was replaced by the G20, which included several emerging economies.
Going forward, the US and China are each likely to account for about 22-23% of the global economy, Western Europe around 12%, other “Westernized” countries around 10%, India around 10%, and the rest of the world around 22% (Enright, 2024a). This multipolar world will be vastly different from the past. We do not know whether international trade and investment will be governed by a unified, rules-based system; or a fragmented might-makes-right system. The US and China will continue to be the most important players, but it might be decisions by the EU, India, and others that determine the governance structures of the future.
- Technological change will have good and bad consequences: Unlike the previous trends, technological change will bring both positive and negative consequences. On the positive side, digitization will allow more products and services to be produced in a globally dispersed way, while AI will lower the cost of doing business across distances. AI will also fuel many innovations in science, health, medicine, agriculture, and industry that will improve the standard of living, even in developing countries. In the last decade, China and India have produced the second- and third-highest numbers of unicorns in the world, after only the United States, creating new opportunities for reverse innovation (Govindarajan & Ramamurti, 2011; Ramamurti, 2024b).
At the same time, technological change may worsen income and wealth inequalities within and across countries, adding to domestic and international strife. AI may make many jobs obsolete, including white-collar jobs, while those able to use AI will flourish. Power-guzzling data centers will clash with countries' net-zero aspirations. And the ownership of data, where it is stored, how and by whom it is accessed, etc., will fuel geopolitical tensions.
Implications for global companies
The megatrends discussed above will force companies to adjust their global strategies and build new capabilities. Summarized below are some of the implications that surfaced at the DMSB conference.
- Rethink China strategy: China has been a major international business story now for decades. But China's economy is slowing; the property bubble is deflating; the population of working age is falling; costs are rising; economic nationalism is growing; East-West tensions are increasing; the impact of Covid is still rippling through the economy; and China's priorities have shifted from headline economic growth to greater technological self-sufficiency. While China may become the world's largest economy, current trends suggest it is unlikely to become the dominant economy that some predicted not long ago (Enright, 2024b).
Chinese companies are also becoming more efficient, making competition tougher, and profits in China more difficult. “Coercive diplomacy,” investigations of foreign companies, Covid lockdowns, and sanctions have increased the uncertainty associated with China operations.
So, from a business standpoint, a geopolitical standpoint, and a resilience standpoint, the China equation is changing. It is still the big game for many companies, but it is certainly not the only game.
- Reconfigure supply chains: David Vitti, head of global procurement at Bose Corporation, believes that companies should be thoughtful in developing China+1 strategies to diversify their supply chains. Since the pandemic, Chinese contract manufacturers have invested in automation and process improvements to become even more cost-competitive. They are lowering prices because of China's economic slowdown, underutilized capacity, and deflationary trends. China also has engineering talent and universities that other countries in the region cannot match. At least for consumer electronics, whose production still entails labor-intensive steps, China's combination of quality, cost, speed, scalability, and dependability are without rival—and may warrant single-sourcing, despite the risks. This is especially true for new product launches where companies need to work with dependable ODMs (original design manufacturers) to protect their brand equity. For other products, dual- or even triple-sourcing may make sense, and companies could quickly pivot from China to other suppliers if necessary. Vitti emphasized that diversification and resilience come at a price; for example, semiconductors sourced from the US may improve resilience but could cost four times as much as those from China or Taiwan. Bose expects that within a year or two 70% of its products will be made outside of China, but the other 30% has good reasons to remain longer in China.
China is a leading player not only in industries such as common electronics or garments but also in emerging industries such as solar panels, rechargeable batteries, and EVs. China produces more than 80% of the world's solar panels and half the EVs. As the world continues to move towards renewable energy, countries will seek to reduce their dependence on China, but once again, they will discover that self-sufficiency is costly because China is so cost-competitive in these industries.
The Chinese market is another reason to retain production in China. About one-third of Bose's revenues come from B2B sales to the automotive industry, which is twice as big in China as in the US. And even with slowing growth, as the world's second-largest economy, China remains a key market for many companies. Bose expects sales of its consumer products within China to pick up because of the government's October 2024 stimulus plans. Similarly, China is the third largest market for Ogilvy, the global advertising firm, after the US and UK. However, Devika Bulchandani, Ogilvy's Global CEO, noted that the company's clients (Western MNCs) in China are seeing declining sales. Ogilvy's own business in China has fallen by about one-fifth, compared to double-digit growth for much of the last two decades.
- Pursue other emerging markets: The changes in China open opportunities for Southeast Asia, India, Eastern Europe, Latin America, and Africa to become much more important in international supply chains and the strategies of multinational companies. Opportunities for these nations include absorbing activities seeking low wages, supply chain resilience, or “friend shoring.” And even leveraging China's Belt and Road initiative, which has built ports and industrial parks in several emerging markets.
Businesses must actively engage in these markets to capture market share. For example, a firm in the luxury goods industry would be wise to not only focus on the US or Western Europe but also markets such as Indonesia, Malaysia, South Korea, Taiwan, or Turkey where demand is growing rapidly.
- Pursue cross-border deals selectively: In today's world, companies do less themselves and strategically resort to acquisitions and alliances to remain competitive and innovative. However, given the greater uncertainty and risk due to political tensions, companies may hesitate to make foreign direct Investments, while host countries may potentially block cross-border acquisitions. Research suggests that if there's a drop in acquisitions, then firms will face a greater reliance on alliances (cite?). But alliances raise a whole set of issues that firms need to be cautious about, such as avoiding adverse selection of partners, and particularly hold-up by partners that can result in bottlenecks in firms' global production and commercialization activities. Does this mean global business is less important than before? On the contrary, it is more important than ever, but geopolitical tensions may mean that firms will be more constrained about where and how they compete and with whom they can form partnerships.
- Expect the U.S. dollar to hold its ground: The U.S. dollar has established itself as the default currency of today's global monetary and financial system, whether for ease, access, stability, or convenience. Dollar-denominated credit to non-banks outside the United States stands at approximately $11.5 trillion, representing 60% of all cross-border borrowings of non-banks; the euro accounts for only about 20% (Eren and Malamud 2021). The dollar's dominance extends beyond debt instruments to other areas, including real and financial trade and foreign currency exchanges.
Before the 20th century's World Wars, the British pound held the leading position in global finance. The dollar's rise to global dominance was fueled by significant economic and geopolitical shifts, suggesting that similar seismic events could unseat the dollar. Yet, transitions between dominant currencies have been exceedingly rare due to strategic complementarities (Somogyi 2021).
The euro was once considered a likely successor or rival to the U.S. dollar, yet the Global Financial Crisis of 2008 and the subsequent Eurozone sovereign debt crisis dampened those expectations because they exposed the Eurozone's inability to present a stable and unified front. The Chinese renminbi (RMB), supported by China's rapiBd economic ascent, is another potential contender. However, China's extensive capital controls—designed to insulate its economy from external shocks, especially from US monetary policy—hinder the RMB's potential as an alternative to the dollar. Recently, BRICS discussed developing a BRICS reserve currency and the development of cross-border payments modeled on the Chinese mBridge system, to serve as an alternative to the current global payments system and evading sanctions imposed by Western nations (Economist, October 2024).
Ultimately, the dollar is still firmly entrenched as the world's dominant currency, notwithstanding America's declining role in the global economy. Any moves away from the dollar will be gradual, and global businesses will continue to operate within a dollar-centric framework for the foreseeable future.
- Keep an eye on cryptocurrencies: A new challenge to the dollar comes from cryptocurrencies. While these have novel financial features, their speculative nature, regulatory ambiguities, and price volatility are barriers to widespread adoption. Money needs to be a unit of account, a store of value and a means of exchange; cryptocurrencies such as Bitcoin do not meet these criteria and are not easily scalable to handle the large volume of cross-border transactions. Cryptocurrencies lack the trust and stability that global currencies like the dollar and euro possess, which are critical for large-scale, long-term financial commitments. Some stable coins, which are generally backed by fiat currencies, have been quite unstable, e.g., the Terra/Luna pair of algorithmic stablecoin and its underlying token collateral currency (Orcutt and Manoylov, 2022).
Yet, there is a search for currencies that are not controlled or regulated by central banks. Bitcoin's market capitalization is nearing $2 trillion as individuals and entities become increasingly willing to adopt a parallel global currency offering the benefits of transparent cross-border usage, instant settlement, and low cost. The Bank for International Settlements (BIS) has started a pilot project to create digital currency tokens linked to fiat currencies which can be used for secure and fast cross-border payments and settlement (Bank for International Settlements 2024). The hope is that such tokens, along with pilot projects from nation states introducing their own Central Bank Digital Currencies (CBDCs), can offer an alternative to private digital currencies such as Bitcoin, Ripple, or stablecoins, thus allowing central banks and nation states to offer the benefits of a digital currency without foregoing control of their money supply and monetary policy (Sarathy 2022).
Implications for global managers
As the global economy changes, global leaders and managers will have to change too. Here are some of the implications discussed at the DMSB conference.
- Pay attention to uncertainties and geopolitics: Politics was always important in global business, but it was largely the domain of political risk analysts when companies operated with a reasonably stable set of rules for international trade and investment. But slowing growth in developed countries and rising geopolitical tensions is ushering in a new era in which rules are likely to be more unpredictable and volatile than before. The global manager or leader must cultivate a higher tolerance for uncertainty and ambiguity than before and pay personal attention to geopolitics.
- Stakeholder relations will get more complex: A corollary of the previous point is that managing stakeholder relations, including with governments, can no longer to left to the company's public affairs specialists. Operating managers, subsidiary heads, and corporate executives will have to get much more involved in these functions.
As doubts about the wisdom of globalization grow, companies will have to prove their worth to their home and host economies. Research suggests that companies are not that good at estimating the value they bring to the economies they operate in (Enright, 2017a). For example, US companies, their supply chains, and the consumer spending of employees generate 13 to 20 or more times the GDP for China and for India as compared to the profits they generate for the US companies in those countries (Enright, 2017b; 2024c). That is a huge number. This was startling news to the Chinese Government, the US Government, and even US companies when the research results were shared with them. That news was also one reason US firms have not been targeted to a greater extent in China during the current tensions.
So, the economic, geopolitical, and governance features of the international business landscape are getting much more complex. Publicly listed firms will be impacted more than privately owned firms (e.g., Bose). It will be the companies and managers that can deal with this complexity that will win in the future.
- Agility and speed will become more important: Geopolitical uncertainty coupled with technological change will put a premium on speedy responses, which in turn will require managers and organizations to become more agile. Take US-China trade relations, for instance; President-elect Trump has threatened high tariffs on all Chinese products, but how high they will be for any given product when they will take effect and how China might retaliate are all up in the air. Companies must be ready to respond quickly when these events kick in—and take anticipatory measures as well.
Similarly, social media, including platforms like TikTok, are changing how consumers access content and news. According to Ogilvy's Global CEO, 100% of their clients have changed their media mix, with digital accounting for 50% or more. The massive increase in online content has made it harder for companies to get through to consumers. She believes you cannot design content for virality, but a quick response can help. She gave the example of a celebrity look-alike contest in New York City that created the possibility of producing a short clip for one of Ogilvy's clients—but it would have to be done within 2-3 days if it was to get any traction. “How do you create meaningful content at the speed of technology?” she asked. Agility is the answer.
- Balance global scale with hyper-localization: As the global economy starts to fragment and become less integrated, managers will feel even more starkly the tension between achieving global scale and being nationally responsive. Digital technology, aided by AI, will make it easier to customize products for individual consumers, which will put pressure on all companies, including MNCs, to localize offerings even more.
An example of hyper-localization is Ogilvy's campaign for Cadbury's, a global confectionary company whose branding theme is “generosity.” In India, Ogilvy localized this theme during the 2023 Diwali festival season with an ad in which Indian mega-star Shah Rukh Khan (SRK) urges consumers to shop for gifts at a particular retail store. The innovative element of this campaign was that any small shopkeeper could modify the ad so that SRK appeared to be asking people to shop at his or her store. The campaign, called “Shah Rukh Khan—my Ad,” went viral. AI was used to make it appear as if SRK was uttering any given store's name in his own voice and through his lips. Over 130,000 mom-and-pop retailers took advantage of this campaign to promote their stores to consumers living close to their shops. In this way, a localized campaign for India was hyper-localized down to the zip-code level. Bulchandani, Ogilvy's CEO, noted that hyper-localizing a campaign in this way is not easy, because “scale's co-pilot is complexity.”
- Be sensitive to cultural issues: If the world continues to drift towards protectionism, isolationism, and fragmentation, MNCs will probably face greater pressure for local adaptation and, with that, the need to really understand local cultures. Devika Bulchandani of Ogilvy noted that localizing the global campaigns of multinational clients requires a deep understanding of each country's culture. For instance, Dove's global campaign was based on the idea that “real beauty” is not necessarily what society traditionally considers as beauty; however, to roll out this campaign globally, Ogilvy had to understand what traditional beauty stood for in each country.
Referring to her own experience, Bulchandani, who came to the US from India, said she had to work hard to understand the US culture to thrive in the US advertising industry. And as her responsibilities expanded geographically, she's had to make the same effort to understand other cultures as well.
Bulchandani also drew attention to the special challenges women face in management and leadership roles—in her case, a woman who is also a first-generation immigrant. Today, only about 10% of Fortune 500 CEOs are women, but that may trend upwards in the future. Bulchandani argues that “feminine leadership” is different from “masculine leadership” and that many of the norms at work are the byproduct of workplaces dominated for decades by male executives. She believes these norms will have to change to accommodate more women in leadership roles. She urged women to be comfortable being themselves and to follow their own styles of leadership. She provided specific examples of how she does this at Ogilvy. The larger point is that as workforce diversity increases in the future, workplace norms and practices will have to change as well.
Conclusions
Globalization offers many benefits, but countries are starting to worry about the costs of globalization. In the coming decades, global firms will have to contend with much greater uncertainty and geopolitical tensions than in the past. Companies will have to rethink their China strategy, optimize supply chains, bolster resilience, and build cross-border partnerships more selectively. Even though America's role in the world economy will change in a multipolar world, the US dollar is likely to remain the world's currency of choice, even if cryptocurrencies gain followers.
Global managers of the future must have a high tolerance for uncertainty and volatility and learn to manage complex stakeholder relations at home and abroad. They must be flexible, agile, and adept at working in diverse, cross-cultural settings. And they must be skilled at balancing global scale with national responsiveness, as pressures for hyper-localization grow.
References
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The Economist (2024a), “Putin's plan to dethrone the dollar”, Oct. 20. 2024, and The Economist (2024b), “A surprise new twist in Putin's currency wars”, Oct. 31st, 2024.
Enright, M.J., 2017a. Developing China: The Remarkable Impact of Foreign Direct Investment. Routledge.
Enright, M.J., 2017b. The Impact of U.S. Foreign Investment and U.S. Companies on China's Economy. Hinrich Foundation White Paper Series Number 17-2.
Enright, M.J. 2024a. Private communication.
Enright, M.J., 2024b. Rising challenges for foreign firms in China, Hinrich Foundation Report, September 2024.
Enright, M.J., 2024c. The impact of foreign investment on India's economy. Hinrich Foundation Report, October 2024.
Eren, E. and Malamud, S., 2022. Dominant currency debt. Journal of Financial Economics, 144(2):571–589.
Govindarajan, V. and Ramamurti, R., 2011. Reverse innovation, emerging markets, and global strategy. Global strategy journal, 1(3‐4), pp.191-205.
Orcutt, Mike and Manoylov, M K (022), Terra, Luna and UST: How we got there. The Block, May 11, 2022.
Ramamurti, R. 2024a. Research in process.
Ramamurti, R. 2024b. Why is India becoming a hub for startups and unicorns? In Andanova-Zuleta, V.S., Garcia, J., and Finchelstein, D. (eds.) Unicorns from Emerging Economies. Cambridge University Press, forthcoming.
Sarathy, R. (2022), “Digital Currencies, Payment Systems and Their Enterprise Implications”, Chapter 3 in Enterprise Strategy for Blockchain. MIT Press, October 2022.
Somogyi, F., 2021. Dollar dominance in FX trading. Northeastern U. D'Amore-McKim School of Business Research Paper No. 4067388
Beyond Boundaries Coverage
Exploring the Future of Global Business: fireside chat with Global CEO Devika Bulchandani
Beyond Boundaries panel discussion: Navigating the Future of Global Business
Welcome to the future: Leading with AI and technology at D'Amore-McKim
‘Beyond Boundaries' panel discussion: Navigating the integration of AI in business and education
